For any security there is no fixed or standalone valuation. valuation is a relative concept, hence valuation is better performed with respect to closest industry peers.
For Example a Company in Specialty Chemical business can not be just compared to other companies in specialty chemical business. For that we have to drill down to the exact chemical produced. And compare companies producing similar Chemical.
The same with almost all companies in any industries/ sectors. (Drill down at Product / service Group - To Segment similar Industry Demand and Growth Profiles)
Here I am focusing on how to drill down to closest industry peers and not how to perform Relative Valuation. But having closest industry peers is the first step.
Also, this helps in finding any abnormal accumulation/ momentum in a stock. When such behavior is observed in only one company and not in it's closest peers. Then such company deserve a very close follow up. Most likely there is hidden accumulation / distribution or front running by Insider or Smart Money.
Here is a very recent example I found in my Exchange: A company names Waterbase limited. There was abnormal volumes and price rise even when it's closest industry peers were going down. Volumes were high. I bought it that time. And right after two weeks comes a Corporate Announcement a great Quarterly result and this is when insiders started offloading and prices fell down even when strong Index and industry peers were stable . So, it was a clear case of insider Trading.
You will not be able to find such opportunities unless you have a close Industry peers to compare to. This just one of the flavor of finding Anomalies, there are many other ways.
This was the case of Anomaly but this setup helps in relative valuation as well.
Here is I am performing this within Amibroker.
1) I have arranged for a products produced and business description from Reuters for each and every company for my Exchange.
2) uploaded it all in MySQL database (table)
3) Created a MySQL full text search indexing on that table.
4) in AFL, I am connecting to DB (ODBC) and making a SQL query that gives me a Score of Match found.
5) Then I am making a composite ticker of all the scripts where the "SCORE > 0".
This composite Ticker is now my Closest Industry peers. Also you can make a watchlist if you want to analyse them in a diffrent way.
I am right now not in front of my laptop, but if one wants, I can provide specific codes.
Thanks,
Ankur
Posted by: meanomalist@yahoo.com
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